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U.S. budget deficit cut in half in a year

Fiscal ’22 red ink drops to $1.4 trillion by Cristina LaRue | October 22, 2022 at 4:00 a.m.

The federal government reported a $429 billion monthly budget deficit in September, but the federal budget deficit decreased to $1.4 trillion for fiscal year 2022 from $2.8 trillion a year ago.

Government spending increased by 75% from August to September, and spending was significantly higher than revenue.

The overall federal budget deficit still roughly halved in size due to the winding down of pandemic-related emergency government spending, lower unemployment and an increase in tax receipts as a result.

The U.S. unemployment rate also dropped to 3.5% last month versus 4.7% in September of last year.

But higher inflation remains a burden on Americans, manifested this year in the form of rising costs for food and fuel.

Compared with September a year ago, grocery prices are up 13%, housing to include rent is up 6.6%, medical care is up 6% and energy is up 19.8%, though gasoline prices have dropped since summer, according to U.S. Bureau of Labor Statistics data.

"Wage and salary increases are driving some increase in the tax revenue as well and that's surprising given the inflationary environment we're in where some workers are expecting and demanding and receiving higher pay to compensate for the higher prices we're all having to pay and that does translate to higher income tax," said Michael Pakko, chief economist and state economic forecaster at the Arkansas Economic Development Institute.

Individual income tax receipts for fiscal 2022 were significantly higher than in the previous fiscal year, Pakko said.

"So there's definitely been an improvement in the peoples' income and through the income tax payments."

The Federal Reserve has raised interest rates sharply to try to soak up some of the liquidity of the economy that's creating inflation, Pakko said.

"When it comes to the impact on the federal debt and deficit, there's kind of two competing forces at work. On the one hand, as we experience inflation, it's equivalent to a reduction in the value of the dollar so that means that in nominal terms, the government's debt and deficit actually gets smaller over time as inflation erodes away the value of those dollars that need to be paid back," Pakko said.

"On the other hand, the higher interest rates that are accompanying the Fed's policy really add to the government's interest expense, the interest payments on the national debt, so that tends to increase it, so those are the two competing forces on how inflation affects the deficit and the debt."

The Internal Revenue Service announced plans Tuesday to raise income thresholds for all tax brackets by 7% and increase the standard deduction in 2023 to keep pace with higher inflation.

The standard deduction will rise $1,800 to $27,000 for couples next year; individuals will see a $900 increase next year, to $13,850.

Accumulating deficits add to the overall federal debt, which totaled nearly $31.2 trillion this week. That figure includes more than $6.8 trillion the government owes itself, including about $2.9 trillion borrowed from the Social Security Trust Fund, according to Treasury Department reports.

Print Headline: U.S. budget deficit cut in half in a year


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